AGRICULTURE: Sugar collapse will hit Queensland economy

by Patrick J. Byrne

News Weekly, November 16, 2002

North Queensland could lose 10-12 per cent of its economy and 15,000 jobs if the industry is allowed to collapse with deregulation in the face of subsidised competition, according to a report by Cummings Economics, for the Advance Cairns development group.

The Cummings report examined the position of the sugar industry and the consequences for Far North Queensland if the industry collapsed and quickly went out of existence.

Commenting on the Report, Mr Cass Arboit, a member the recently formed Cane Farmers Reform Committee, said that the Report's findings express "the fear of many in the industry.

"The industry is facing a Federal and Queensland plan to totally deregulate the industry in the face of a highly corrupt world market".

"Other sugar producing areas of Queensland will face the same economic and job losses the Report warns will affect North Queensland. This will significantly impact on the Queensland economy," Mr Arboit said.

The Report said that the Australian sugar industry had proved highly responsive in competing with heavily subsidised, low wage sugar producing countries.

Australian sugar producers had "survived and prospered only through leading the world in efficiency - in the application of capital and superior technology to farming production and transport processes."

In the 1990s, the industry operated at one-third of the 1950s price for sugar, adjusted for inflation, "reflecting the massive increases in efficiency that have been achieved."

Mr Arboit said that Australian producers had led the world in the development of bulk sugar handling, the mechanical harvester and specialised cane delivery vehicles, underground irrigation piping, water recycling, laser grading of cane fields, minimum tillage techniques, the mechanical application of fertilisers below ground, and trash blanketing of fields to prevent water loss and erosion.

The Cummings Report examined the international causes of the low price of sugar, which has brought the industry to its knees.

It said the crisis had been caused by the massive off-loading of Brazilian sugar onto the world market, after it unpegged its currency from the US dollar in October 1998, because of the effects of the Asian currency crisis. Since then, its currency has devalued over 300%, stimulating its export market and increasing production.

According to Mr Arboit, "other Australian forecasters predict that it will take seven years of sustained growth in world demand for sugar to overcome the recent boom in Brazil's sugar expansion".

The Cummings report said that "The net result for the Brazilian industry has been a massive increase in competitiveness against the Australian industry and other sugar producers.

"The implications of this for the world sugar market have been immense.

"The Brazilian industry is very large. About half of its production goes into ethanol production. Of the rest, about half is absorbed by the large domestic market.

"The massive devaluation made production of sugar for export markets highly attractive.

"The feared 'alcohol bomb went off with a switch taking place out of ethanol [to sugar production] and the industry expanding rapidly.

"On top of this, the Brazilian industry has improved its efficiency in recent years.

"Brazil's share of the world sugar export market has increased from about 4% in the early 1990s to about 25%.

"To put the situation in context for the Australian industry, if the Australian currency had collapsed to the extent of the Brazilian Real, Australian farmers would be very happy indeed and be receiving $700-$800 per tonne - a price the industry would regard as a bonanza.

"An important thing to realise about the current situation with Brazil is that it has come on very suddenly – there was no real warning that the collapse in the Brazilian currency would be so severe and prolonged."

The Cummings Report also said that "major competitive exporters like Brazil and Thailand operate from a base where their home market is large [Brazil's population is 172 million] ... Major countries like the USA and Japan heavily protect or subsidise their domestic industry in its home market and the European Union not only protects its domestic industry in its home market but also subsidises massive exports."

The effect of subsidies and tariffs is that consumers in these countries are paying higher prices for sugar in the domestic market than for sugar sold on the world market.

The Japanese pay 150% more, European Union and US consumers pay 67% more and Mexican consumers 54% more. Only in Australia do consumers pay the world price for sugar.

Mr Arboit said, "The industry must not be totally deregulated. Through regional meetings, our Committee has reached half the 6,500 cane farmers in the past month and they have unanimously rejected the Federal and Queensland deregulation package and supported our Committee's alternate industry plan."